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Byatt puts leak burden on water firms

Ian Byatt, the water industry watchdog, has warned companies that they must bear the cost of reducing leakage from pipes - which could amount to billions of pounds - and will not be allowed to pass the burden through to customers.

Mr Byatt also said that companies would have to shoulder the burden of any "windfall tax" imposed by a Labour government, put by the City at between pounds 2.5bn and pounds 5bn.

Speaking at a London conference, Mr Byatt said water companies had underestimated demand for water and that any extra investment needed in the wake of the recent drought would have to be met within existing price controls.

He said the companies had failed to do enough to develop water metering to try to manage demand. He also said they had compunded their own problems by lack of progress in volume-related pricing, which could translate higher demand into greater revenues.

The Water Services Association recently announced that the sector would try to reduce leakage from an average 25 per cent across the country to about 15 per cent and this could cost up to pounds 4bn.

A spokeswoman for Ofwat said yesterday: "We need to get the message across that they should not entertain the idea that customers might pay."

The WSA said yesterday that Mr Byatt's comments came as no surprise. But a spokesman added that should a Labour government impose legal targets for leakage, Mr Byatt would be duty-bound to examine whether it should result in more lenient price controls.

Mr Byatt's missive came as the WSA announced that the 10 big water and sewage companies have spent pounds 13bn over the past five years in improving water quality and sewage services - about pounds 1bn more than predicted when the industry was privatised.

The 10 big companies account for 90 per cent of the total investment in the industry.

Separately, Ofwat said customers in parts of Surrey will see price cuts of up to 5 per cent if the proposed merger between East Surrey Water and Sutton District Water goes ahead. The merger of these companies is too small in terms of their combined assets to be automatically referred to the Monopolies and Mergers Commission. But Mr Byatt said: "Nevertheless any merger between water companies reduces the number of available comparators which enable me to regulate the water industry and is therefore of concern."